A flow-through share is a security issued by a resource company that waives the deduction of its exploration expenses in favor of an investor. With the Speech on the Budget of March 30, 2004, the Government of Québec extended indefinitely all the tax benefits related to this type of action.
Under the Québec Taxation Act, an individual who acquires flow-through shares may receive significant tax deductions for the purposes of computing his taxable income. The Québec plan makes a basic deduction equal to 100% of the cost of flow-through shares possible. For shares acquired after March 30, 2004, the individual can deduct an additional 25% when exploration expenses are incurred in Québec by a company that does not exploit any mineral resource. Added to this is an additional deduction of 25% when exploration is conducted from the surface, bringing the total deduction to 150% of the cost of the investment. As of June 5, 2014, the total deduction is reduced to 120% of the cost of the investment,
As of March 31, 2004, two other amendments apply with respect to Flow-Through Shares. Upon the sale of the share, the investor may benefit from the capital gain exemption realized on the portion of the sale price between the acquisition cost of the shares and their adjusted cost base, which is equal to zero. It may also deduct certain issuance costs that have been waived by the issuing corporation over a period of five years.
Under the Income Tax Act, an individual may claim a basic deduction of 100% of the cost of the investment in a flow-through share acquisition. In addition, the federal government provides a non-refundable tax credit of 15% of the surface exploration expenses incurred by March 31, 2015.
Upon the sale of the flow-through share, the individual pays tax on the capital gain on the full sale price, since the adjusted cost base of the share is zero.
A net fiscal cost of the most advantageous
For the 2016 taxation year, the net after-tax cost per $ 1,000 of flow-through shares was $ 306.78 when the individual achieved the highest marginal tax rate.
Investment per $ 1,000 of flow-through shares for surface exploration (in 2016) ( cost of $ 1,000 investment )
Contact: Revenu Québec Business Services Branch | 418 659-4692